2015 Acquisition Trends Update: The Floodgates Open

The last four full weeks of the year are upon us. Only 33 days full working days left this year (or less depending on your holiday schedule). I hate to be the bearer of bad news, but if you have not already started to set your business plans in place for 2016 you are behind the curve. Business growth comes through careful planning. The most successful companies in the industry plan years in advance how they will manage their growth and most, if not all, will have their 2016 budgets done before December 1.

Recently the large consolidators have put their growth plans into overdrive. These plans were made months and years in advance. But a deadline has a unique way of motivating all of us. The year-end floodgates appear to have opened after what appeared to be a relatively slow year for mergers and acquisitions in the collision industry when compared to 2014. In the past five weeks (since the beginning of October) Caliber, ABRA and Service King have all announced major acquisitions of leading regional MSOs, and Boyd / Gerber has announced the acquisition of 11 locations in nine separate transactions. To say the corporate development teams have been in busy would be an understatement.

On Tuesday November 17th Brad will be presenting at an industry event in Detroit, MI. The presentation will discuss 5 strategies to drive business growth in the face of industry consolidation. If you are in the area it would be great to meet face to face. Please use the contact page to schedule a one on one meeting. Please set up a meeting time as soon as possible as time slots are rather limited. The details of the event (time, location, etc.) are available at this link.

Caliber has now acquired more locations this year than they acquired in 2014. When the acquisition of Sterling by Service King is factored out, Service King also has acquired more locations this year relative to last year. ABRA has acquired nearly as many locations as they did in 2014. Boyd, while meeting guidance, has only acquired half as many locations compared to 2014.

I have observed Boyd’s growth strategy with increasing interest. As a publicly traded company, management is required to disclose the general growth strategy to the investing public. As a result, the company sets very public growth targets. Wall Street investors hold management accountable to those targets. And while ABRA, Caliber and Service King are all backed by large private equity groups that have similarly aggressive growth targets and boards that hold management similarly accountable (if not more so), the specifics of their growth plans are not made public.

The power of a publicly stated goal is undeniable. Boyd continues to provide public guidance on the number of single store businesses it expects to acquire over the course of the year. Boyd has a very specific plan towards growth. Boyd has consistently stated that they will add 19 to 32 single locations in 2015. To date they have acquired 28 locations, of which 18 locations have been single or two store businesses.

The reason I bring up these stats is because in the past five weeks, 11 of these 18 locations have been acquired (or come on line from a brownfield development). The company has been very diligent in ensuring that it meets its stated objective of growing 6 – 10% through single store additions. A lot of the transactions have closed recently, relatively close to the end of the year. And over 2/3rds of the acquisitions have been completed in the second half of the year, after a rather quiet first half. In terms of the number of transactions, Boyd has completed more deals in the past five weeks than all the others combined over the past six months.

The point of all this is to highlight the importance of a defined growth strategy. In the absence of a clearly defined acquisition strategy it is entirely possible that the company could have let a slow first half of the year derail its growth.  For less-disciplined companies the response very well could have been one of ambivalence, citing a difficult environment to get deals done. Instead, it appears that management acknowledged the challenge and refocused its efforts and got back on track the second half of the year.

Another area I find interesting about Boyd’s growth strategy has been the pricing discipline it has maintained in pursing growth. A common refrain in the company’s quarterly report is “In terms of MSO acquisitions, as we have said in previous quarters, competition to acquire has intensified resulting in fewer MSOs available within our desired valuation range. There are, however, still limited opportunities remaining and we will continue to pursue those opportunities that are accretive”(accretive means adding to earnings per share – subscribers email me if you want to discuss the differences between accretive and dilutive acquisitions and why this is important for some companies). In both single location acquisitions as well as large regional MSO acquisitions, as demonstrated through the company’s financials, Boyd has maintained a disciplined pricing strategy.

The result of all this is that the company continues to grow in a managed and disciplined way, fulfilling the promises management makes to shareholders. The company has very specific growth goals. The company also has very specific pricing goals. In fact, before making an acquisition, management knows the price ceiling it is able and willing to pay to close an acquisition. Management knows when to walk away. As the comments above about increasing competition for MSO acquisitions suggest, if the price of an acquisition exceeds the amount the company is willing to pay, management will remain disciplined in its acquisition strategy and walk away.

There is a lot to learn from Boyd, especially for a privately held company pursing an acquisitions-based growth strategy. Boyd has a team dedicated to determining the appropriate price for acquisitions as well as the appropriate number of single location acquisitions. The team is dedicated to managing the financial side of the acquisition, negotiating with lenders and arranging financing as appropriate. It understands how to perform “due diligence”, or to investigate a company to ensure that what the company says translates to into financials. The team understands legal and environmental risks, and how to structure deals so that the company is protected and does not take on undue risk.

The presence of a dedicated team to both set goals as well as manage financial and other risks associated with acquisitions is a powerful tool. This team is commonly referred to as “corporate development” and typically consists of individuals with MBAs and transaction experience in and outside of the industry. Corporate development is a blend of operations, finance and strategy, and is designed to enhance the overall value of the firm while minimizing the risk profile of the firm. It is a critical department to have on staff when growing by acquisitions.

I want to help you grow your business. If you are interested in discussing how to develop a corporate development team, or how to create and execute on a growth plan like Boyd, shoot me an email. You can use my contact page or email me direct if you are a subscriber. With the thinning ranks of regional MSOs now is a great time to grow.

Until next week!

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